Illustration: holding company with direct share holding, Financial Accounting

Illustration: Holding company with direct share holding

Rain Ltd., Storm Ltd. and Thunder Ltd. are in the business of manufacturing tents. Their balance sheets as at 30 September 2003 were as below:

 

Rain Ltd.

Storm Ltd.

Thunder Ltd.

 

Sh. “000”

Sh. “000”

Sh. “000”

Sh. “000”

Sh. “000”

Sh. “000”

Non-current assets:

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

(net of depreciation)

 

14,000

 

6,300

 

1,700

Shares in subsidiaries

 

  5,000

 

 1,900

 

        -

 

 

19,000

 

8,200

 

1,700

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Inventory

2,000

 

1,200

 

1,600

 

Trade payables

4,800

 

2,000

 

800

 

Cash

2,700

 

1,400

 

1,100

 

 

9,500

 

4,600

 

3,500

 

Current liabilities:

 

 

 

 

 

 

Trade payables

( 5,000 )

 

( 2,600 )

 

( 1,800 )

 

Net current assets

 

 4,500

 

 2,000

 

 1,700

 

 

 

 

 

 

 

 

 

 

23,500

 

10,200

 

3,400

Financed by:

 

Authorised and issued

 

Share capital:

 

Ordinary shares of Sh.100

15,000

 

5,000

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10% preference shares of Sh. 100 each fully paid

 

 

 

 

 

-

 

 

3,000

 

 

-

General reserve

 

6,000

 

3,000

 

1,000

Retained Profits

 

2,500

 

  ( 800 )

 

400

 

 

23,500

 

10,200

 

3,400

 

 

 

 

 

 

 

 

 

 

 

 

Additional information:

 

1.       Rain Ltd. purchased 30,000 ordinary shares in Storm Ltd. on 1 October 2001 for Sh. 3,400,000 and 5,000 preference shares on 1 October 2002 for Sh. 600,000. On 1 October 2002, Rain Ltd. purchased 5,000 ordinary shares in Thunder Ltd. for Sh. 1,000,000. Storm Ltd. purchased 11,000 ordinary shares in Thunder Ltd. for Sh. 1,900,000 on the same date.

 

2.    Balances are as given below:

 

Profit and loss account

 

Storm Ltd.

1 October 2001

Sh. 500,000 (debit).

 

1 October 2002

Sh. 600,000 (debit).

Thunder Ltd.

1 October 2002

Sh. 300,000 (debit).

 

 

 

 

 

 

General reserve

 

Storm Ltd.

1 October 2001

Sh. 1,000,000

 

1 October 2002

Sh. 2,000,000

Thunder Ltd.

1 October 2002

-

 

 

 

 

 

3.    The following inter-company balance are included in the balances of trade debtors and trade creditors:

 

Receivables

Rain Ltd.

Sh. 600,000 due from Thunder Ltd.

 

Thunder Ltd.

Sh. 300,000 due from Rain Ltd.

 

 

Sh. 200,000 due from Thunder Ltd.

 

 

 

 

4.    On 30 September 2003, thunder Ltd. remitted Sh.200,00 to Rain Ltd. which was not received until 3 October. There were no other inter-company balances.

5.    Rain Ltd. sold goods to Storm Ltd. for Sh.800,000. The goods had originally cost Rain Ltd. Sh.600,000. Storm Ltd. still had Sh.200,000 worth of these goods (at invoiced price) in stock as at 30 September, 2003.

 

Required:

Prepare the consolidated balance sheet of Rain Ltd. and its subsidiaries as at 30 September 2003. 

 

 

Solution:

Rain Ltd and its subsidiaries

Consolidated Balance sheet as at 30 September 2003

 

Sh.’000’

Sh.’000’

Non Current Assets

PPE

Goodwill (W2)

 

Current Assets

Inventory (2 + 1.2 + 1.6 – 0.05)

Receivables(W6)

Cash (2.7 + 1.4 + 1.14 + 0.2)

 

 

EQUITY AND LIABILITIES

Share capital

Sh.100 ordinary shares fully paid

General reserve (W5)

Retained Profits (W4) (300 + 2,028)

 

Minority interest (W3)

 

 

 

 

 

4,750

6,500

  5,400

 

 

 

22,000

  1,006

23,006

 

 

 

 

16650

39656

 

15,000

7,780

  2,328

25,108

  6,048

31,156

 

 

 

Current liabilities:

 

Payables

 

 

 

 

8500

TOTAL EQUITY AND LIABILITIES

 

39,656

 

 

Workings

 

1.                                              Determination of group ownership structure

 

Storm Ltd

 

Thunder Ltd

 

Ordinary

Preference

 

Ordinary

Rain Ltd:

     Direct

     Indirect

 

Minority Interest

 

60%

 

 

40%

1/6

 

 

 

5/6

 

 

(60% x 55%)

25%

33%

58%

 

42%

 


 

2.                                                                      Cost of Control

 

Sh.’000’

 

Sh.’000’

Investment in Storm:

     Ordinary

     Preference

Share of retained losses

     (60% x 500)

 

Investment in Thunder

     (60% x 1,900) by Storm

Rain spent in Thunder

 

3,400

600

 

  300

4,300

 

1,140

1,000

____

Share of Storm equity

Ordinary share capital  (60% x 5000)

General reserves (60% x 1000)

Preference share capital (i/6x3,000)

Goodwill I

 

Share of Thunder equity

Ordinary share capital (58%x2,000)

Profit b/f (58% x 300)

Goodwill II

 

3,400

600

500

  200

4,300

 

1,160

174

   806

 

6,440

 

6,440

 

            Total goodwill on consolidation = 806 + 200 = 1,006

 

3.                                                                      Minority Interest

 

Sh.’000’

 

Sh.’000’

Cost of shares in Thunder

    (40% x 1900)

Storm Ltd Profit & Loss

     40% x 800)

Consolidated balance sheet

 

760

 

320

6,048

 

 

 

 

_____

Storm Ltd: Equity

Ordinary share capital (40% x 5000)

Preference share capital (5/6 x 3000)

General reserve (40% x 3000)

Thunder Ltd: Equity

Ordinary share capital (42% x 2000)

Preference share capital

General reserve (42% x 1000)

Thunder Ltd Profit & Loss

     (42% x 400)

 

2,000

2,500

1,200

 

840

-

420

 

    158

 

7,128

 

7,128

 

 

4.                                              Group retained Earnings A/c

 

Sh.’000’

 

Sh.’000’

Rain Ltd

UPCs (200/800 x 200)

Bal b/f

Thunder ltd:

Cost of control a/c

25% x 300               75

33% x 300               99

Minority interest

(42% x 400)

Consolidated balance sheet

 

50

800

 

 

 

174

 

168

2,328

Bal b/d: Rain

Cost of control a/c

     (60% x 500)

Minority Interest A/c

     (40% x 800)

Bal b/d: Thunder

2,500

 

300

 

320

400

 

 

 

____

 

3,520

 

3,520

 

5.                                                          Consolidated General reserve

 

Sh.’000’

 

Sh.’000’

Storm Ltd: COC (60% x 1000)

                  MI (40% x 3000)

Thunder: MI (42% x 1,000)

Consolidated balance sheet

600

1,200

420

  7,780

Bal b/f

     Rain

     Storm

     Thunder

 

6,000

3,000

  1,000

 

10,000

 

10,000

 

 

6.                                                                      Group Receivables A/c

 

Sh.’000’

 

Sh.’000’

Rain Ltd

Storm Ltd

Thunder Ltd

4,800

2,000

800

 

____

Cash in transit (Thunder)

Group creditors: T – R

                           R – S

                            T – S

To consolidated balance sheet

200

400

300

200

6,500

 

 

7,600

 

7,600

7.                                                          Group Payables A/c

 

Sh.’000’

 

Sh.’000’

Group debtors

To consolidated balance sheet

900

8,500

____

Rain Ltd

Storm Ltd

Thunder Ltd

5,000

2,600

1,800

 

9,400

 

9,400

 

 

 

 

 

Posted Date: 12/12/2012 4:46:17 AM | Location : United States







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